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Define the Term ‘Option Premium’ in the Context of Derivatives Trading

The option premium is the price of the contract, consisting of intrinsic value plus extrinsic value.
Greeks.Live04.11.25

Define the Term ‘Option Premium’ in the Context of Derivatives Trading.

The option premium is the price paid by the buyer to the seller for the right to exercise the option contract. It is the market price of the option.

The premium is composed of two parts: the intrinsic value and the extrinsic (time) value. This cost represents the maximum loss for the option buyer and the maximum profit for the option seller.

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